All the major equity indexes closed higher Tuesday with positive internals on the NYSE and NASDAQ as trading volumes declined on both. While most closed near the midpoints of the session, several indexes managed to close above their accelerated downtrend lines, turning their trends to neutral from bearish. Yet, with these improvements, intermediate downtrends remain intact that, in our view, require a higher high and higher low to become more convincing that a positive shift is occurring. Breadth saw some modest improvement as well. Looking at the data, the McClellan OB/OS Oscillators are neutral, but the sentiment data is quite bullish. So, while some rays of light are peaking through the clouds, we believe some further improvement is required to be more confident in a positive turn for the indexes.On the charts, all the indexes closed higher yesterday with positive internals on lighter volume. Most closed near their midpoints of the session.
- Some charts improved as the S&P 500, Dow Jones Industrial Average, NASDAQ Composite, Nasdaq 100, S&P Midcap 400, and VALUA closed above their accelerated downtrend lines and are now neutral versus bearish.
- The chart improvements are not thoroughly convincing as higher highs and higher lows have yet to be seen.
- Market breadth saw some improvement as well with the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ turning neutral from bearish.
- Stochastic levels remain oversold and lack bullish crossover signals.
Regarding the data, the McClellan OB/OS Oscillators are all neutral (All Exchange: -2.73 NYSE: -25.98 NASDAQ: +15.2).
- The % of SPX issues trading above their 50 DMAs (contrarian indicator) lifted to 4% and well below the 25% trigger line, remaining bullish.
- The Open Insider Buy/Sell Ratio rose again to 104.7 as insiders continued their buying during the past week.
- On the other hand, the detrended Rydex Ratio remains very bullish -2.53 as the leveraged ETF traders are highly leveraged short.
- This week’s AAII Bear/Bull Ratio (contrarian indicator) remains very bullish at 1.97 as the crowd remains fearful.
- The Investors Intelligence Bear/Bull Ratio also remains on a very bullish signal and still near a decade peak of fear at 42.7/29.4. Such extreme levels of investor fear have typically presaged notable market rallies.
- The forward 12-month consensus earnings estimate from Bloomberg for the SPX dropped to $236.34. As such, the SPX forward multiple is down to 15.9 and at a discount to the “rule of 20” finding ballpark fair value at 16.7.
- The SPX forward earnings yield is 6.28%.
- The 10-year Treasury yield closed higher at 3.31%. We view support as 3.0% and new resistance at 3.51%.
In conclusion, while the charts and market breadth saw some improvement, offering some encouragement, they were not quite strong enough to become convincing. Meanwhile, sentiment and valuation suggest upside. Still, we believe some further chart and breadth strength is necessary to be more confident that a positive market turn is imminent.
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